This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
Question: We are finalizing our 2024 condo budget. Do you have any advice for ways to save money?
Answer: As a former Condo Board Treasurer, I feel the pain that this time of year brings, so I’m happy to offer some advice that helped me finding savings while I oversaw the budget and has helped other Associations do the same… review your Master Insurance Policy.
I know, it’s not the most exciting answer, but your insurance policy is likely a top three expense every year and if you haven’t reviewed it lately, there’s a good chance you can cut the cost by 10% or more and probably improve your coverage at the same time.
I’m not an expert in insurance so, I asked Andrew Schlaffer, President of ACO Insurance to provide some details on what Boards should look for when they do a review of their Master Policy. If you’d like to discuss a review with Andrew directly, you can reach him at 703-595-9760 or [email protected]. Take it away Andrew…
Hardening Markets, Increasing Premiums, Decreases in Coverage
The condominium insurance marketplace is facing challenges that will impact homeowners in 2024 and beyond. The combination of catastrophic storms and reduced reinsurance capacity continue to wreak havoc on many communities worldwide causing some property insurance markets to increase rates and/or exit the habitation market entirely. Through the first two quarters of this year, on average, US property insurance renewal rates increased by 20%. Water damage claims are still among the loss leaders impacting Unit Owners locally, along with fire damage and wind/hail claims. The DMV is home to many aging condo buildings that continue to struggle with mitigating water damage losses and their impact on insurance premiums.
As water damage claims continue to rise and property damage costs increase, many insurance carriers are beginning to make changes to their coverage offerings that may increase your risk exposure. A few examples of these coverage changes include increased deductibles, per unit water damage deductibles, removing coverage for Sewer or Drain Backup and Wind-Driven Rain.
In general, condominium property rate increases in the DMV have been significant and unpredictable. Much of the pricing impact can depend heavily upon carrier underwriting discretion which highlights the importance of your insurance professional specializing in this space. It is unheard of for Master Insurance policies to receive between a 10% to 20% property rate increase. For struggling communities, these rates are much higher.
The umbrella/excess liability carrier marketplace has also faced tremendous disruptions. There are several factors driving these rate increases including but not limited to: COVID-19 impacts, years of underpricing, reinsurance rate increases, and the rise of nuclear verdicts (claims over $10MM).
Additionally, there have been several specialty real estate programs who no longer offer umbrella/excess liability options for the habitational industry which has put a lot of strain on remaining carrier markets to fulfill the increase in demand. Many communities can expect umbrella/excess liability rates to increase between 10% to 25% this year.
Pillars of Insurance Reviews
Condo insurance reviews require a holistic approach, so it’s important to break the cost into a few distinct categories: insurance premium, deductible expense, and out-of-pocket costs. To effectively accomplish long-term savings, all three of these categories need to be considered and addressed with a qualified insurance professional.
Adjust Coverage Responsibly to Save on Premium
Premium is certainly a factor to consider during the insurance selection process; however, available insurance products differ significantly. Coverages and services should be very carefully analyzed and compared. While omitting various coverages will save premium dollars, it might also result in substantially increased costs to the Association for out-of-pocket expenses related to uncovered claims.
It is critical to work with a professional who understands local insurance needs and can adjust your insurance program in a way that maximizes premium savings while maintaining adequate insurance coverage. Some coverages may be required by statute and/or Association documents, so cutting required coverage exposes the Board to unwanted risk.
This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
I’ve written this weekly column for 8 (!) years and made plenty of social media posts for my business, yet my most viral moment (by a long shot) came two weeks ago from…a picture of a bird! But not just any picture of a bird, it was a BALD EAGLE with a RABBIT in its talons! In Arlington!
So even though this has nothing to do with real estate, I thought I’d share with everybody the photo below that went “viral” and got almost 4,500 likes/interactions and 350 shares in the Virginia Wildlife Facebook Group. And later written about in The Zebra, an Alexandria-based publication.
I live in Alcova Heights and was walking to Thai Square (best Thai food in Arlington) for dinner with a friend when we turned the corner onto S Glebe Rd, just north of Columbia Pike, and saw this eagle perched on the wall with a freshly caught rabbit hanging from its talons. It sat there for a while posing for photos and letting us gawk, until taking off in a low glide across the parking lot, with the rabbit hanging below it. The wingspan must have been 6-7+ feet.
Check out how close it let us get in the video below, which I stopped filming as soon as it turned and looked me directly in the eyes and I decided my life was more important than continuing to film!
If you’ve captured some crazy wildlife photos in Arlington, let’s have it shared in the comments section!
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.
Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10CA
This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
In two weeks, I’ll be hosting my first ever Ask Eli Home Buyer Workshop, with my business partner Jean Ropp and Loan Officer, Jake Ryon, with First Home Mortgage.
Catering will be provided by our local favorite, Ruthie’s All Day!
The workshop is free and will cover:
- How to use data and strategy to maximize the home purchase process
- How to use market trends to your advantage
- The latest on interest rates and mortgage programs/products
- 5 common mistakes to avoid and some tips for success
Who is it for?
- Any buyer type from first-time buyer to experienced buyers
- Ready to purchase now or planning 18-24 months out
- Home buyers in Northern Virginia, D.C., or the Maryland Suburbs
- You or anybody you know who would benefit
Where and When?
- Tuesday, October 3 from 6-7 p.m.
- Our Ballston office at 4040 N Fairfax Drive 10th Floor, Arlington, VA
Registration is free and is now open — space is limited. Click on the event graphic to RSVP. Bring your appetite and your home buying questions!
I’d love to see you there. Feel free to email me at [email protected] with any questions about the event.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.
Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10CA
This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
Question: In the six months since Arlington passed Missing Middle, what have you seen and what do you think of it?
Answer: It’s been about six months since Arlington passed the Expanded Housing Options (EHO) aka Missing Middle (MM) zoning changes, allowing the construction of 2-6 unit properties on lots that were previously zoned exclusively for single-family homes. There has been much excitement and angst about it changing the fabric of our community, but it seems to me that the outcome will be much milder than many people expect. Unfortunately (or not?), it seems like it won’t go far enough to make the proponents happy but goes far enough to make the opponents angry.
For those who want more of an introduction to Missing Middle, you can read my initial thoughts on MM from March. This week, I’ll share an assortment of thoughts and observations I’ve gathered over the last few months while I try to better understand what MM means for Arlington. I’ll caveat the entire column saying that MM is all very new, very much undeveloped, and we probably won’t understand where and how it will be most utilized for another 4-5 years.
Don’t Expect Floodgates to Open
More than a dozen Missing Middle applications were submitted during the first week the County opened applications (on July 1), but according to Arlington’s application tracker, there are currently 22 applications submitted and under review and 5 applications approved. I consider this to be a modest pace of applications, suggesting there’s not a huge appetite yet to build Missing Middle. I’ve run at least a dozen scenarios with builders and architects and have mostly found that the numbers don’t make sense or that the margins are too tight to justify given the risk of the unknowns (outsale prices/demand, permits, lawsuit, etc).
Initially, I expected MM to add significant value to many older, smaller Arlington homes right away and cause a bit of a frenzy in the marketplace. The limitations of the new zoning code coupled with uncertainties about market demand for MM products and the County’s permit process seem to have kept, from my observations, developers and investors from paying a premium for tear-down homes intended for Missing Middle development (the pending lawsuit is also a significant factor).
Based on my conversations, it seems that the approach many are taking is to apply a similar valuation to an acquisition as they would for single-family development so there’s a safe exit if the Missing Middle project doesn’t work out or the lawsuit prevents further development. Each investor will evaluate potential MM deals differently, but it seems unlikely, for now, that we’ll see a frenzy of buying at a premium over previous tear-down valuations. There will of course be exceptions for certain lots that set-up perfectly for MM.
Applications Don’t Mean Much
So far, all we’ve seen are applications for Missing Middle construction not actual construction, but it’s important to understand that applications, even the five approved applications, are a small first step towards delivering a Missing Middle project. The County does not charge an application fee and the requirements for an application are simple:
- Floor plans
- Building elevations
- Existing property plat and building location survey
- Proposed property plat and building location survey
- Landscaping and/or tree preservation plans
I think that many approved applications won’t get any further, especially after going through Arlington’s ever-changing Land Disturbance Activity (LDA) and Stormwater requirements (this comes after the MM application gets approved), which adds a lot of cost and complexity to construction projects in Arlington and hamper profitability.
I also wouldn’t be surprised if a lot of the owners are hoping to sell their home with an approved Missing Middle application and set of plans, but don’t intend on actually building it themselves. That means they may not have done a true cost/profit analysis to determine if MM is financially viable or more profitable that a single-family development, so they might not get built.
One question I have for the County is that, given the limits on the number of applications they’ll allow each year, how will they clean out the application pool of applicants who decide not to build, sit on their application, or get stuck in the application process?
This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
Question: Are there any studies or data comparing the results of on-market vs off-market sales?
Answer: I hope everybody had a great Labor Day Weekend! Last week, we reviewed what the MLS/Bright MLS is which is a good lead into the recent study completed by Bright MLS that looks at the performance of properties sold on-market (via Bright MLS) vs off-market (not listed for sale in the MLS). For those so inclined, the study provides a detailed explanation of their methodology that led to the data reported in this article.
Selling On-Market = Listing in MLS
When people talk about selling or buying homes on or off the market, they are generally referring to whether or not that home was listed in an MLS. Our regional MLS is called Bright MLS and is the second largest in the country including most or all of Virginia, D.C., Maryland, Delaware, West Virginia, Penslyvania, and New Jersey.
Almost 95% of DC Metro Homes Sold on Market
The vast majority of homes are sold on-market, especially in the D.C. Metro, which has the largest percentage of on-market sales of anywhere in the Bright footprint with 90% of homes selling on-market in 2022 and 93.5% in 2023 Q1, up from 85% in 2019
Selling On-Market = Much Better Price for Sellers
The study went to great lengths to analyze the results of comparable properties (something they failed to do in their initial study in 2021) to provide an accurate measure of the difference selling through Bright MLS makes for sellers. The chart below shows how much more a comparable home sells for when sold via Bright MLS vs off-market/MLS.
The on-market premium has increased significantly over the last three years when the market has been running red-hot. Homeowners in the D.C. Metro earned 18% more on comparable homes sold on-market in 2023 Q1 and 15% more in 2022.
When the market heats up like it has the last few years, you often hear homeowners talk about how easy it is to sell a home off-market because there’s so much demand. Sure that is true, but the question is not whether or not you can sell the home off-market (of course you can), the question is whether or not that nets you the best result (it rarely does).
Why Sell Off-Market?
There are a number of scenarios where an off-market sales with limited exposure is justified — privacy (athletes/celebrities), security (high value personal possessions), interest from a family member, friend, or neighbor — and there are examples of off-market sales producing results that match or sometimes exceed what one might get via the MLS, but for the vast majority of homeowners, an on-market sale will produce significantly better results because of the tremendous increase in exposure to potential buyers.
Those considering an off-market sale should do so with a clear understanding of the disadvantages and measure those against your own reasons for considering an off-market approach.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.
Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C A
This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
Question: I often hear people reference the MLS or Bright when referring to properties for sale. Can you explain what these are?
Answer: If you’re buying or selling a home anywhere in the US, you may hear the term “MLS” and if you’re buying in the Mid-Atlantic “Bright” used a lot. The simplest way I describe it to people is that the MLS, short for Multiple Listing Service, is the real estate industry’s database(s) of record for property sales. There are hundreds of regional and local MLS’s across the country that act as the aggregator of properties for sale/rent.
Bright (MLS) is the name of our regional MLS and, with just over 110,000 participating agents, it is the second largest MLS in the country behind the California Regional MLS. Prior to 2017 it was called MRIS (Metropolitan Regional Information Systems), but in 2017 it was rebranded to Bright after a merger with 8 other regional MLS’s mostly from PA, NJ, and DE.
The map below shows the current Bright MLS footprint, meaning brokerages/agents in all of these areas input their listings into the same platform. It covers 40,000 square miles and 20M people.
What is the MLS (Multiple Listing Service)?
The MLS is a real estate information exchange platform and database created by cooperating residential real estate brokerages to improve the efficiency of their real estate market. As a privately created and managed organization, each MLS is primarily funded through the dues of the brokerages and agents within the market it serves. There are hundreds of MLS’s across the country and each operates under its own direction, and rules and regulations.
The information you find on consumer-facing websites like Zillow comes from various MLS’s and each MLS has the right to negotiate its own relationship (syndication agreements) with these sites and determine what information is made available.
Without the MLS concept, we would have an extremely fragmented industry that would make it difficult for buyers to ensure they are seeing most/all of what is for sale within their sub-market and it would be much more difficult for sellers to get top dollar because they would not have access to the entire buyer market.
What is Bright MLS?
Bright is the MLS that serves the mid-atlantic region including all of, or most major markets in, Virginia, Washington, D.C., Maryland, Pennsylvania, New Jersey, West Virginia, and Delaware.
The Executive Committee and Board of Directors is made up of representatives from the region’s major brokerages and directs the business of Bright, which has developed into a full-blown software, services, and technology company. Bright has adopted a strict set of rules and regulations to provide data uniformity and ensure fair play such as restrictions on marketing properties for sale that are not entered into the MLS, as discussed in this article.
MLS is a Net Benefit to Consumers and Agents
Your interaction with Bright MLS is likely to come from listings that your real estate agent sends you directly from the system, but you are also indirectly interacting with Bright whenever you search a 3rd party real estate site like Zillow because their data is pulled from Bright (and other MLS systems across the country).
While at time frustrating for brokerages, agents, and consumers (personally, I think there’s so much more they can do with data and their consumer-facing tech), the MLS structure is a tremendous net benefit for the industry and consumers by combining home sale data into one database with a common set of requirements and rules of engagement. This allows the entire industry to function more efficiently than it did prior to the MLS concept, which has led to lower commission fees.
The biggest example for consumers (and I’d also argue to Realtors) is that since Zillow and other consumer-facing sites began aggregating listing information for public use, real estate agents are no longer the “gate-keepers” of listing information and consumers have direct access to practically everything that is on the market (entered in an MLS) in nearly real-time.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.
Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C A
This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
Question: Can you provide any additional data on what the market will do for the remainder of the year?
Answer: If you have enjoyed my real estate columns over the years, I would greatly appreciate your vote for Arlington Magazine’s Best Of Arlington, Real Estate Agent (in the Home section) and encourage you to support all of your favorite Arlington businesses with a meaningful vote!
Last week I published an article highlighting that the second half of the year is easier on buyers than the first half. This week we can explore some other predictable market trends to help buyers and sellers anticipate the upcoming market.
New Listings to Spike in Two Weeks, Then Fall Sharply
There will be a predictable spike in new listings after Labor Day, proceeded by a rapid decline through the end of the year.
- Just 17% of total annual listing volume comes to market in Q4, with less than 7% of total listing volume over the last two months of the year
- 46% of homes are listed for sale during 1/3 of the year from early March to late June
- The market goes on summer break with everybody else from late June through August
- Note: this chart is for Arlington but the same trends can be applied across the region
Our Q4 Lows Will be REALLY Low
Broken record time… we are experiencing historically low listing volume with sales down 25% from the historical average across the DC Metro. Total listing volume in Q2 (when we have the most inventory come to market) was on par with Q4 volume in previous years (least amount of inventory) so we will likely see just a trickle of homes hitting the market in Q4 this year.
Buyer Activity/Demand Will Also Jump Soon, Then Fall Around Holidays
Along with a pop in listing volume after Labor Day, there’s usually a coinciding jump in buyer showing and contract activity that lasts through mid/late October before nose-diving in November.
But Sellers Will Continue to Reduce Asking Prices
Courtesy of Altos Research, the chart below highlights the annual cycle of the percentage of homes reducing the asking price. The diamond and circular markers represent Aug. 13 of each year and show that we are just past the halfway point of a sharply increasing number of price reductions through the end of the year as sellers fight to attract buyers before the holidays.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.
Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C A
This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
Question: Is it better to buy a home in the second half of the year?
Answer: The second half of the year is almost always easier on buyers than the first half. With the exception of 2020, when we had a delayed spring market because of COVID lockdowns, nearly all market metrics improve in favor of buyers in the second half of the year. The only issue… it gets harder to find what you want because listing volume drops significantly.
The table below compares first half market data to second half market data, and I’ve calculated the change of each year’s first half to second half market metrics. A few quick notes about the data:
- I did not include 2020 because it was not a normal market due to COVID lockdown during the spring/summer
- Net Sold = Sold Price less any Seller Credits
- The data is based on when a property was listed (first half or second half of the year), not when it closed, so we can have a true indication of market metrics based on when a property hits the market
Prices Drop in Second Half, Not as Much as Data Suggest
The data point that most people will focus on is the drop in average net sold price from first half to second half with an average decrease of 4.8%. This is a combination of buyers being able to negotiate more and home values actually dropping and less expensive homes being sold in the second half than first half. So yes, market values weaken in the second half, but they are not dropping by 3-7% like the data suggests.
Buyers Negotiate Much More in Second Half
A great metric is the second column, the average net sold to original ask percentage which shows how much buyers are negotiating (or paying more) relative to the initial asking price. On average, buyers are negotiating 1.1% more off the original asking price in the second half of the year compared to the first half. Last year it changed by 3% when interest rates spiked at a historically fast pace from late spring through the fall and the market did a 180.
Sellers Giving More to Secure Deals in Second Half
In transactions that included a seller credit (seller paying buyer closing costs), buyers negotiated an average of 8% more in seller credits in the second half compared to the first half.
Market Significantly Slower in Second Half
From 2015-2022, the number of homes going under contract in the first ten days decreased by an average of 22.3% in the second half of the year to an average of 37% of homes selling within ten days compared to 48% in the first half of the year. The average days on market for homes listed in the second half of the year increased by 26.8%.
Buuuutttt… It’s a LOT harder to Find What You Want
The number of homes hitting the market for sale decreases by 1/3 from the first to second half of the year, making it much harder to find that perfect home. What I usually advise clients is to focus on the first half of the year if you’re looking for the perfect home and focus on the second half of the year if you’re looking for value.
Market Differences Within the Second Half
The market also differs within the second half of the year, with July/August slowing significantly from the preceding months, followed by a pop in supply and demand after Labor Day, until really slowing down for the holidays in November/December.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.
Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C A
This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
Question: What impact will the new Toll Brothers community have on the Arlington housing market?
Answer: If you have enjoyed my real estate columns over the years, I would greatly appreciate your vote for Arlington Magazine’s Best Of Arlington, Real Estate Agent (in the Home section) and encourage you to support all of your favorite Arlington businesses with a meaningful vote!
Toll Brothers will open sales of 40 new single-family homes at The Grove at Dominion Hills very soon (projected by this fall) starting in the $1.9Ms (really $2M) and I suspect most of the homes will have a final price tag of $2.1M-$2.3M.
All 40 homes will not be available at once, rather they’ll be released in phases based on the pace of sales, but the addition of these homes to the market will have a significant impact on the supply of new construction homes in Arlington and I expect will put downward pressure on the price of new builds under ~$2.6M.
The Grove Will Be a Big Percentage of New Construction Supply
Arlington has averaged just over 95 new homes sold per year since 2018 (per MLS, which includes most but not all new homes sold) so even if it takes two years for Toll Brothers to release all 40 home sites, those homes will represent a significant percent increase in the supply of new homes in Arlington.
If you look at the sales of comparably priced homes ($2M-$2.4M), The Grove will bring an increase of 60-70% more new builds to market over the next 18-24 months (assuming that’s the timeframe they release all 40 home sites within).
Most new homes in Arlington are located in the 22207 zip code, with 52% of new home sales (275 of 524) since 2018. The Grove is in the 22205 zip code and while it’s just 1.5 miles from 22207 and 22205 also commands premium pricing and shares many of the same characteristics as the 22207 zip code, there’s no data to support whether or not the 22205 market is prepared to absorb 40 new homes at this price point. Of the 73 new homes sold in 22205 since 2018, just seven have closed at or above $2.1M — one more is under contract and three are for sale.
And New Homes Are Already in a Softer Sub-Market
Adding that kind of supply to any market is bound to put downward pressure on prices, but I have no doubt that the market would happily gobble up dozens of 2,500-4,000 SqFt homes in the $1M-$1.5M+ range. However when you get into the 5,000+ SqFt market (I imagine most of the 40 homes will finish with 4,500-5,000+ SqFt) and in the $2M-$2.5M range, you enter into that is already pretty well balance between buyers and sellers, softer than the rest of the housing market, without the inventory from The Grove.
The first chart, courtesy of Altos Research, shows the percentage of homes with a price reduction in the “upper” price range of the Arlington single-family home market, which The Grove community will fall within. Notice the upward trend of price reductions this year highlighted by ~30% of homes reducing price this spring compared to previous spring markets with just 20-25% of homes with a price reduction.
I have seen this play out anecdotally as well with more new builds reducing the asking price or accepting larger discounts from ask than in years past. I would expect this trend to continue as the market adjusts to the Toll Brothers inventory rolling in later this year and in 2024-25.
The Months of Supply (MoS) chart below, a good measure of supply and demand where higher MoS suggests a market more favorable for buyers, shows us that the market for homes with 5,000+ SqFt is very much in balance between buyers and sellers, with about six Months of Supply. Most housing economists say that six MoS is a balanced market, below six favors sellers, and above six favors buyers. For comparison, the overall Arlington market measured 1.4 MoS in Q2 2023.
So this chart tells us that unless demand picks up sharply for large homes, the extra supply added by Toll Brothers will likely push this sub-market (~5,000+ SqFt) into a buyer’s market.
Local/Smaller Builders Will Bear the Burden
Most likely, none of this will matter to Toll Brothers and it will be a problem for their competition (everybody else building in Arlington) to bear. Toll Brothers can afford to wait for premium buyers longer than smaller builders can, Toll Brothers has an exceptionally efficient and proficient sales machine including full-time sales staff, model homes, and a nationally recognized brand, and Toll Brothers can offer incentives smaller builders can’t compete with, most notably through the Toll Brothers mortgage company.
If I was a builder in Arlington, I would be careful over the next couple of years on projects in the $2M-$2.5M range with tight margins.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.
Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C A
This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
Question: Do you have any recommendations for ways to reduce the burden of high interest rates?
Answer: Hearing somebody suggest an interest-only mortgage may initially sound like a gimmick and bad financial advice, but for some buyers, an interest-only mortgage might be a great option to responsibly purchase more house within budget, with more control over your payments.
I was recently discussing mortgage options for a client with Skip Clasper of Citizens Bank ([email protected]) and he brought up their interest-only mortgage product so I thought I’d share it here in case it can help anybody else. Most banks attach a higher interest rate to their interest-only product, but Citizens Bank does not (currently).
Standard Mortgage vs Interest-Only
A traditional mortgage is designed so that every payment is a combination of interest and principal, so that the loan is fully paid off after 30 years if you make the same minimum monthly payment each month. In the early part of the loan, most of your payment goes towards interest.
An interest-only mortgage is a loan that does not include any payment towards principal with each minimum monthly payment and thus lowers the amount you pay each month. Any money you pay over your minimum monthly payment goes directly towards principal and you can choose when and how much to make those extra payments. Note that in a standard mortgage, you can also pay additional money towards principal at any time, but you must make the minimum payment, which includes interest and principal.
The difference in payments between the two products isn’t massive because so much of your initial payments on a traditional mortgage are interest, but you can see from the table below that the difference in payments is enough to move most buyers into a new pricing tier (better/bigger home) or to become more competitive in the price tier you’re in (better chance of offer being selected). The table below doesn’t contain a $500k loan amount because the interest rates on lower loan limits are usually too high to justify.
Who Should Consider an Interest-Only Loan
There are a handful of buyer profiles that I think should consider an interest-only mortgage to give themselves more spending power and/or more control of their loan payments:
- Professionals with high bonus/commission compensation structures like attorneys, partners/executives, salespeople, and business owners. The key is making sure that you are allocating money from these windfall bonus/commission payments towards paying down your principal, but it helps keep your cashflow more manageable during the months where you have less or no income.
- Homeowners who have high short/mid-term expenses like childcare. A family with two young kids in childcare may be paying $4,000+ per month and for most families, that cost will go away within a couple/few years. Once those costs drop off your budget, that money can be redirected into paying down the principal, if you haven’t yet been able to refinance into a lower interest payment.
- Buyers where a new job or promotion is highly likely within a few years that will cause your income to increase enough that can start paying down the principal and make up for lower, interest-only payments early on. A good example of this is a couple where one person works and the other is in grad/medical school.
- Buying a “forever home” and you’re finding yourself coming up a short on the budget you need to get into the right home and you don’t want the difficulty of managing higher payments in the first 2-3 years to prevent you from buying what you need for the next 20-30 years. There must be a reliable way for you to be able to be able to start paying down the principal (and catching yourself up) after a few years.
Waiting for Interest Rates to Drop to Refinance
A lot of buyers in today’s market are taking on higher mortgage payments than they can’t afford long-term and counting on interest rates to drop in a year or two so that they can refinance. While the odds are good that there will be a refi opportunity in the next 12-24 months, it’s far from certain and if you can’t sustain your minimum required payment on a traditional mortgage for more than 12-24 months, you’ve got a problem.
For buyers who are willing to take a gamble on a refi, an interest-only loan may be a safer way to wait for rates to drop because if it takes longer than expected, you have more control over how you pay down your mortgage prior to rates dropping enough for a refi.
Fiscal Responsibility is Key
The key to using an interest-only loan is to use it responsibly and have a solid plan in place to make payments towards principal rather than waking up 8-10 years into your loan payments with little to no dent in your loan balance (principal). If you do not trust yourself to do this, don’t even consider taking on an interest-only mortgage.
Qualifying is More Difficult
Interest-only mortgages are a riskier product for banks, so the lending standards are higher than a traditional loan. For most banks, you must qualify based on a 20yr amortization payment scheduled instead of a 30yr, meaning your debt-to-income ratio must be a lot stronger. Most banks also require you to have a significant amount of reserves after closing (retirement funds can usually be applied) and you need at least 20%-25% down.
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.
Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C A
This regularly scheduled sponsored Q&A column is written by Eli Tucker, Arlington-based Realtor and Arlington resident. Please submit your questions to him via email for response in future columns. Video summaries of some articles can be found on YouTube on the Eli Residential channel. Enjoy!
Question: What is the normal commission rate for a Realtor who represents a buyer in Arlington?
Answer: There has been a long-held belief that real estate agents should avoid public discussion of commissions because of antitrust laws and ethics violations, but now that many public-facing real estate websites (e.g. Zillow and Redfin) are publishing buyer-side commissions, not to mention recent efforts by the National Association of Realtors and our local MLS (BRIGHT) to open-up transparency. I’ll make an annual column out of the data on buyer-agent commissions.
The data and charts below represent the buyer-side commissions published in the MLS for transactions in Arlington, sans any subjective commentary that could get me in trouble. I don’t have access to listing-side commission data, so you’re only seeing commission data for one side of the transaction.
How Are Commissions Determined?
In most cases, commissions are set in the Listing Agreement between the seller and the seller’s real estate agent. A total commission fee is established, with a disclosed amount going towards the agent/broker representing the buyer of the home. That buyer-side commission is published in the MLS. Buyer agents may establish minimum commissions or other fees in their Representation Agreement between them and the buyer (PSA for buyers: be sure to ask about these minimums or fees when selecting your agent or reviewing your Agreement).
Buyer Agent Commissions Down 12% Since 2015
In 2015, buyer agent commissions averaged 2.89% across all transactions in Arlington. As of 2022, the average buyer agent commission in Arlington dropped by 12%, to 2.54%. The average commission dropped by 6% from 2017 (2.81%) to 2019 (2.65%).
Buyer Agent Revenue Flat for Past Decade
Setting aside the historically high volume of real estate transacted in 2021, revenue (calculated by sales volume multiplied by the average buyer agent commission percentage) to brokerages covering buyer-side transactions in Arlington has remained fairly flat since 2015 (and earlier) because higher sales volume (driven by higher prices) has been offset by lower commission fees.
Broker/Agent revenue in 2023 will drop as significantly as it increased in 2021 due to low sales volume in 2023.
